Panelists Question USMCA's Future, Say Higher MFN for Cars Likely

He said that the government of Canada engaged in "anticipatory obedience" last year when it hiked tariffs on Chinese electric vehicles to 100% and hiked tariffs on Chinese steel and aluminum to 25%. "We thought we were going to please the U.S., putting these tariffs on Chinese EVs and steel and aluminum. It hasn’t really got us anything."

China has retaliated against Canadian agricultural exports as a result, but rather than being spared tariffs, Trump seems more hostile in some ways to Canadian imports than to Mexico's.

Lamp said as long as Trump's policy is to deprive Canada of its manufacturing base -- which Trump often declares, saying cars should be made in the U.S., not Canada -- it's hard to see how Canada can agree to a revised USMCA.

"While he’s trying to do that actively, it’s hard to imagine how a trilateral agreement can survive," he said.

Panelist Eduardo Diaz, a partner at Agon in Mexico, said there's been little public notice of it, but Mexico has been aligning with U.S. interests in the last few years, by raising tariffs on almost 400 tariff lines, where the goods were mostly coming from China. He said more than 100 HTS codes are at the bound tariff rate under the World Trade Organization.

"To top that, we're a very active player on trade remedy issues," he said, with 57 active orders, and 65% against Chinese goods.

"There's been a lot of talk recently that Mexico might be the back door for Chinese goods coming into the region," he said, with arguments that Chinese companies will open factories in Mexico and do just enough work there to Chinese components to get the goods to qualify for USMCA ... or, in the case of cars, to export cars that can't meet the rules of origin with a 2.5% tariffs.

"Look at the actual figures," he said. Mexico received $36.8 billion in foreign direct investment in 2024, and 44% was from American firms. China accounted for less than 2% of FDI, at $710 million, and is ranked tenth as a source of investment.

By contrast, he noted, Canada received $5.3 billion in Chinese FDI last year. He said the U.S. is a net loser of Chinese investment at this point.

Whether Trump would be hostile to Chinese companies opening factories in the U.S. was debated during the panel. Christine McDaniel, an economist and senior research fellow at George Mason University's Mercatus Center, said, "People around Trump do view Chinese investment as a national security threat."

But, when asked by International Trade Today if Trump really is so hostile to Chinese investment if it means adding U.S. manufacturing jobs, some panelists said Trump's no ideologue on China.

Autos Drive America CEO Jennifer Safavian acknowledged, "He did say that on the campaign trail." In May, Trump said he would not allow a Chinese-owned factory in Mexico to export cars to the U.S.; He'd put a 100% tariff to prevent that. He then said, "If they want to build a plant in Michigan, in Ohio, in South Carolina, they can, using American workers, they can. They can’t send Chinese workers over here, which they sometimes do. But if they want to do that, we’re welcome, right?”

Autos Drive America represents Volvo Cars, a Chinese-owned car company with headquarters in Sweden, which has a manufacturing plant in South Carolina. The trade group does not represent Polestar, the EV brand that spun out of Volvo and is also Chinese-owned, but Polestar, too, builds vehicles in South Carolina.

Safavian drew a distinction between Volvo, owned by Geely Holding, and other Chinese auto companies, calling Geely a "passive investor."

"I think it would be an incredible shame if something would happen to those factories in South Carolina," she said. A connected vehicles rule promulgated during the Biden administration would ban the sale of cars made in South Carolina by Volvo and Polestar if they had advanced features to allow them to connect to chargers, cell phones in the car, or mapping satellites. However, a Commerce Department official said, "We welcome the opportunity to work with those companies on mitigation measures and specific authorizations," so their cars can continue to be sold (see 2409220001).

"I think there will be exceptions made," Safavian said.

Lamp said he wasn't that surprised that Trump said he was open to Chinese car factories opening in the U.S.

"Trump doesn’t really care about national security," he said, recalling how he would talk about restrictions on Huawei as a bargaining chip. "He ultimately cares about production happening in the U.S., and not national security."

Panelists agreed that the U.S. would seek to tighten the automotive rule of origin as part of a USMCA renegotiation, and Lamp said he thought the owners of the companies would be part of the scope.

Safavian agreed. "The U.S. government has been very clear they want that renegotiation to start immediately," she said.

She said her group is hearing that the most favored nation rate on cars -- currently 2.5% -- will be hiked, because the administration is unhappy about how many cars from Mexico are imported without claiming USMCA benefits. According to a report from the Office of the U.S. Trade Representative, it was between 7% and 8% of new car imports from the region in 2023, nearly all smaller cars from Mexico.

She said the administration is also "a little disappointed" that the changes from NAFTA to USMCA didn't result in more automotive expansion in the U.S.

"Their concern is Mexico got more of it than the U.S., and they want to change that," she said.

Safavian added that to change the MFN rate, Congress would have to act.

Lamp interjected, "That’s the situation we’re in right now. If you don’t comply with USMCA, you’re paying with 25% ... ." He said that's a hugely increased incentive to comply with the rules of origin, and everyone who wasn't doing it is not scrambling to do it.

Safavian said she hopes a renewed USMCA can be reached without one of the countries quitting the FTA.

"The integrity of this agreement is critically important to the auto industry," she said. She also noted that the U.S. did not honor a panel decision on how the auto rules of origin can be calculated.

So, technically, even before Trump took office and blew up the trading relationship, the agreement's integrity was somewhat in question.

"However, I do have concerns about how this process is going to play out," she said. She said she thinks it will be a long process.

Lamp said Trump's objective is to bring jobs back from Mexico and Canada, and that's incompatible with USMCA.

He said his only hope is that retaliation from Mexico and Canada, along with the "economic pain that the U.S. inflicts on itself with the tariffs" is so painful for the U.S. economy "that it becomes unsustainable for Trump to continue."